Name Ehsan Ullah
M.com 2nd Semester
Roll. No 22
Presentation:
Managerial Economics
Topics: Product Variation and Selling
Expenses Under Monopolistic
Competition
Introduction
 The
monopolistic competitor can always
change his product either by varying its
physical attributes or by changing the
promotional programmes. Product
variation and selling expenses make the
firm's demand curve less elastic and
increase the costs of production.
Non-price competition refers to the efforts on the
part of a monopolistic competitive firm to
increase its sales and profits through product
variation and selling expenses instead of a cut in
the price of its product. The monopolistic
competitor can always change his product either
by varying its physical attributes or by changing
the promotional programmes.
Product variation and selling expenses make the
firm’s demand curve less elastic and increase the
costs of production. Consequently, the amount of
profits which the firm can earn by producing the
quantity of the product that equates its MR with
MC will also be changed.
Product Variation
 Product
variation is any change that
alters the physical characteristics of a
product or the conditions under which the
product is sold. The attributes of the
product or service offered to buyers
include the quality, brand name,
packaging, service agreements and
warranties. Whenever the monopolistic
competitor brings about product
variation, his cost and revenue curves will
shift.
Selling Expenses
 Sales
promotion refers to advertising,
publicity and personal selling by a
monopolistic competitor to shift upward
the demand curve for his product, it is
also Known as selling expenses on
advertising and promotion incurred by a
firm to induce consumers to buy its
product as against its rivals.
Explanation

But in the present, the term selling costs
includes besides advertising, expenses on
salesmen, concessions to retail sellers of the
product for window displays and free service,
free sampling, premium coupons and gifts to
customers. Thus it has become difficult to
draw a line between product variation and
sales promotion.

A monopolistic competitor will try to have
such a sales promotion programme that
maximises his profits.
Non-Price Competition under
Monopolistic Competition

We illustrate the first case in Figure 12 where the
monopolistic competitor’s demand curve before
product variation is D1 and LAC1 is his average
cost curve. We have not shown the MR and MC
curves to simplify the diagram. He is selling OQ,
quantity of the product at OP (=Q1E1) price and
earning PABE1super-normal profits.
When he brings about product variation, his
demand curve D1 shifts upward to the right
as D2 and becomes less elastic. Given the
fixed price of the product as shown by the
price line PL, he now sells a larger quantity
OQ2 at the same price OP (=Q1E1). But his
efforts at product variation have also
increased the costs of production of the
product, as shown by the upward shifting of
his LAC1curve to LAC2 curve.
Even though the costs of production have
increased, the monopolistic competitor earns
larger profits PGFE, than (PABE1) before
product variation. This is because his sales
have increased by Q1Q2 due to product
variation and increase in the demand for his
product.